Stock market today: Can a Fed rate cut give Indian shares a lift?

Stock investors are closely watching the US Federal Reserve, which is expected to deliver a 25-basis-point rate cut as its two-day policy review concludes on Wednesday. Ahead of the decision, the US dollar index slipped to an eight-week low. Historically, a weaker dollar has had a positive correlation with equities in India and other emerging markets (EMs).

Nomura India noted that while US PCE inflation has turned dovish, August data indicated broadening price pressures from tariffs and persistently high core services inflation. The brokerage expects the Fed to announce a 25-basis-point cut, calling it an “insurance cut” with a gradual pace of easing. It said the median 2025 dot plot would likely remain unchanged, implying only two cuts this year.

Devarsh Vakil, Head of Prime Research at HDFC Securities, echoed this view, saying the market has already priced in a quarter-point cut, spurred by signs of labour market weakness. “While a 25-basis-point cut appears certain, investors will focus on the Fed’s statement and economic projections for cues on the path ahead,” Vakil said.

Viram Shah, Founder & CEO of Vested Finance, said the debate is not about whether the Fed will cut but by how much. “A 25-basis-point cut is almost certain, but some chatter suggests the possibility of a larger 50-basis-point move,” Shah noted, citing the US economy’s mixed signals. Job growth slowed sharply to 22,000 in August, unemployment edged up to 4.3%, and inflation cooled to 2.9%—well below recent peaks.

“This combination gives the Fed room to support growth without reigniting inflation,” Shah said. “For investors, the bigger shift is that policy, restrictive for two years, is now turning supportive. Lower rates could aid equities—particularly technology and housing—while easing pressure on real estate through lower borrowing costs. Whether the cut is 25 or 50 basis points, the signal is clear: the Fed is acting to steady the economy, and that matters for investors globally.”

Vakil added that markets expect further 25-basis-point cuts in October and December, though Chair Jerome Powell is likely to stress that decisions remain data-dependent.

Meanwhile, ICICI Securities highlighted that US President Donald Trump has urged the Fed to deliver a larger cut. It noted that 10-year Treasury yields are near five-month lows, reflecting growing expectations of a total 75 bps of easing this year.

For India, global cues are mixing with domestic challenges. Equities have lagged EM peers amid sustained foreign portfolio outflows—₹1.40 lakh crore so far in 2025—driven by stretched valuations and tariff headwinds. The rupee recently hit record lows despite a weaker dollar, as the RBI limited intervention and unwound forwards to preserve reserves, allowing depreciation to aid exports. Analysts pointed out that capital flows remain muted, though the current account deficit is manageable despite weaker merchandise exports.

“Indian markets may open slightly soft but are likely to find support in technology and banking stocks. Optimism around the Fed’s anticipated actions could help spark a recovery,” said Ponmudi R, CEO of Enrich Money.

JPMorgan added that it remains bullish on EM assets, with futures pricing in 26 basis points of easing from the Fed.